Spain and Portugal: A Closer Look at Bankruptcies

In this commentary, DBRS Morningstar analyses some key metrics related to the evolution of bankruptcies in the two Iberian countries from 2007 to date.

Summary highlights include:
-- Excluding individuals and self-employed, the total number of bankruptcy declarations have been fairly stable (Spain) or steadily decreasing (Portugal). In the case of Spain, however, there are some sectors, namely hospitality and services, where the effects of the pandemic have started to reveal and, in relative terms, have reached all-time highs.
-- Government support measures and special legislation developed during the Coronavirus Disease (COVID-19) pandemic are probably containing the numbers of new bankruptcy declarations and a potential surge in some sectors. Once these measures come to an end, the nonperforming (NPL) stock may increase.
-- The average timing for court resolutions of bankruptcy processes is on an upward trend and is currently at or around all-time highs. This extended timing could lengthen if the potential surge in new declarations materialises by putting additional pressure on the judicial system.

“From a NPL securitisation performance perspective, more bankruptcy declarations and increased timings are two factors that would negatively affect performance on a standalone basis. However, as not all sectors have been affected equally by the pandemic it is premature to take a strong view on the future expected performance of our rated transactions”, stated Alberto Cruces de la Rosa, Assistant Vice President in DBRS Morningstar’s European NPL team.